Real Estate Appraisal Practice Exam

What does the term "accrued depreciation" refer to in appraisal?

1. Decrease in property value due to market fluctuations

2. Decrease in property value due to wear and tear

3. Increase in property value from renovations

4. Increase in property value from market demand

The correct answer is: Decrease in property value due to wear and tear

Accrued depreciation refers specifically to the decrease in property value that occurs as a result of wear and tear, which is a natural part of a property's lifecycle. This concept is essential in appraisal, as it helps to determine the current market value of a property by accounting for the loss in value that has occurred over time due to physical deterioration, functional obsolescence, or external factors affecting the property. In the context of appraisal, recognizing accrued depreciation is crucial because it allows appraisers to provide a more accurate valuation that reflects the property's true condition and market worth. When appraisers assess a property, they take into account how age and usage have impacted the structure, systems, and overall appeal, thereby giving potential buyers a clearer picture of what they are investing in. Other options involve elements that contribute to property valuation but do not define accrued depreciation. For instance, fluctuations in the market or renovations can affect value positively, while accrued depreciation focuses solely on the loss of value due to the aging process and deterioration, making it a specific and distinct measure within property appraisal.